Reflections on Economics, Society, Philosophy, and Whatever Else I Feel Like Discussing

Friday, 4 April 2014

What Is Wrong with Hayek's 'The Road to Serfdom'?

This year marks the 70th anniversary of the publication of F.A. Hayek's famous book The Road to Serfdom. Its thesis is that democracy is imperilled by citizens' viewing it as a means to just about any ends they might have. One may think of it as two wolves and a sheep voting on what to have for dinner, a sort of doll's-house view of society in the sense that voters use democracy to order fellow citizens about.

Examples include demands for safety nets, public provisions of education and health care, etc. All of these policies use a measure of force to achieve their ends. One may approve of the policies anyway, of course, but the resources to achieve them must come from somewhere and this means individuals' scope to decide their own ends must necessarily decline. One can be served from a government tray, or one can decide how to put together one's own tray with whatever means one has.

Hayek argued that such tendencies must inevitably spell the end for liberty and indeed for democratic institutions, because once the erosion of freedom to decide individual ends has proceeded too far, the resultant state control over many, many aspects of life gives it, ultimately, the power to decide who eats and who does not, who prospers and who perishes. The many things at the state's command also necessitate delegation to committees and departments which cannot be subject to democratic choice, or they simply won't be able to run smoothly.

There is a lot more to the argument and I encourage everyone to read the book, but what I want to discuss here is why, even in countries in which governments tax around fifty per cent of GDP, tyranny does not seem to lure around the corner. With the growth of government having continued since 1944, why do Hayek's fears appear ill-founded?

I believe a big part of the explanation must be that there are built-in breaks in political competition which inhibit totalitarian tendencies. Hayek argued that the only thing that can stop creeping totalitarianism is a popular opinion which favours the liberal principles upon which democracy was once founded. But popular opinion has limited (although not nonexistent) influence on legislation. Given how little influence an individual voter has on political outcomes, it would be foolish to suppose that he keeps himself au courant with what politicians do.

This opens the door for special interests. On the surface, it might not seem like an improvement, but there is nothing to suggest that interest groups only favour illiberal policy. They are frequently at loggerheads over all sorts of issues, some wanting more redistribution but others wanting less. Candlemakers might petition the government to block out the sun, but tourist resorts will lobby against such a move. Various Green groups may lobby against GMOs, but if so they are likely to face some opposition, for instance from firms researching GMOs.

Furthermore, politicians may try to reap rents by taxing citizens whose willingness to pay for certain policy is relatively great, giving away a share of these rents to other citizens with a negative-but-lower-in-absolute-value willingness to pay for the selfsame policies. If clear-headed thinking is associated with greater willingness to pay, poor policy is at an inherent disadvantage. Of course, clear-headed thinking in politics may be very rare (I don't know), but it is conceivably a force opposing bad policy.

Another contender to explain why liberal democracy has survived is that the tax-to-GDP ratio has not climbed quite high enough yet. I think this is a poor contender reminiscent of Marxian explanations that capitalism must progress just a little more before the advent of the workers' revolution. I do doubt that any speck of freedom would survive if governments suddenly started taxing in excess of ninety per cent of GDP, but my favoured explanation above already covers this because the built-in breaks prevent that from occurring. And if what saves Hayek's thesis is that it has, at least so far, been impossible to go far enough, there just does not seem to be much point to Hayek's warning. 'Beware of the Hydra' would be a poor warning for the same reason. Because there is no Hydra.